It’s interesting, people’s different attitudes about money. It was suggested to me that since we have “multiple cars and a boat”, that we must have different priorities other than our dog (who we love dearly and spend several thousand dollars a year on already), because it was eye opening to me what the cost of a specialist is.
No matter our income or net worth, I don’t think I’m going to stop paying attention to the cost of things. I suspect we will always use coupons, shop for cheaper prices and try to not be ripped off. The thought that it’s selfish or inappropriate to pay attention to the cost of goods or services is foreign to me. We were brought up lower middle class and have been through some tough financial times. I don’t think you forget that.
@busdriver11 - I agree completely. I always pay attention to the cost of eggs, yet I’m comfortable traveling 4-6 weeks every year and didn’t hesitate buying a boat so I could hang out crabbing in the Sound.
Yes @sherpa, sometimes it might seem funny to others the things that people pay attention to. Much of it is probably habit or upbringing, I suspect. I wear some of my clothes until they are threadbare, as I hate shopping, and have other cheapskate habits. Maybe the answer to when I will consider myself “rich” is when I don’t pay attention to pricing. So that will probably be never.
My sil and I had pretty similar upbringings. Her parents are very cheap. Mine are blue collar lower middle class. My H and his brother had the same upbringing ;). My MIL has always known how to stretch a dollar and now even when they could, and we try, do not spend money needlessly.
But how my H and I spend money is so different. My bil makes a lot more money than my H. But even with that, their attitudes toward money are so different. They spend money likes it’s their last day on earth. They are mortgaged to the hilt and keep buying and taking trip after trip.
My H and I are pretty cheap. We try to live pretty cheaply and try to save for a reasonable retirement. My bil thinks he will work until he’s 70. We gave our kids a college education debt free and then set them free. They are still supporting theirs.
I think it’s that people are different and some are risk adverse, I know we are. I think it’s big that now I buy the more expensive chicken at the market.
I pay attention to prices and look at bills and invoices. I do comparison shopping and use coupons when they are available. If that makes me cheap, OK, I’m probably not going to change. I don’t like debt and we have paid off all debts we owe. Our kids have no debt and like it that way–were fortunate to graduate from college debt-free.
My siblings differ. Some of them spend money as fast (or faster) than it comes in while others save for the future–theirs and their kids & grandkids. We paid for our new car in cash because we don’t like debt while my sister and BIL just bought their new car via a car loan (hopefully at a good % interest rate).
RE: post 14598 - the whole reasoning behind “wait until 70 to claim SS” assumes that the rules will still be the same when you hit age 70. I am going into this assuming that there will be changes to SS, such as means testing. Part of me thinks its a better idea to collect at 62 and invest the money in something safe like CD ladders…
^^well, in reality, SS benefits already face a tax on up to 85% of the benefits received when your retirement incomes over $34k single, or $44k MJ. (The other 15% has already been taxed.)
I suppose that the feds could always lower the bend point, but I’m guessing that would not impact too many folks on cc.
CD ladders (or treasuries) are great, but will still result in interest income, bumping one up against the SS bend points. And the interest earned is less than the gain by waiting to file for SS. (which was the point of the article.)
But in the end, it becomes a decision on how long you think you and your spouse will live. Living beyond ~80 makes it beneficial to wait, at least for the higher income spouse. In poor health? File before FRA.
Not sure why our kids would want to put an etf in an IRA. Zero cost mutual funds work great. Fidelity offers several which are perfect for buy and hold. And other big fund companies are near zero.
Kid got burned with those Fidelity early redemption fees… no more mutual funds for her no matter what we say. She shifted her $$ into biotechs and other individual stocks and has no regrets so far.
In other words, forget trying to find the next AAPL (or Genentech?) and buy the whole market to eliminate risk – stock risk, style risk and manager risk.
Index funds in comparison to what? Individual stocks? Etf’s?
The advantage of low cost index funds is that one can buy and hold and essentially eliminate transaction fees and have nearly zero management/admin fees. Play the long game and not have to worry about buying and selling individual stocks or sectors (straws of hay?).
That being said, most folks starting out – particularly those who are non financial – are probably better off with an age- or target-date fund offered by one of the big brokerage houses (Vanguard, Fidelity, Schwab). No fuss, no muss.
as an aside, and speaking of Fidelity, they have a wonderful no-fee HSA offering now.
There was a long discussion about it on Boglehead. People have different theories about it. I hold index funds in a taxable account and bonds in a tax advantaged account. When you withdraw from IRA, it is taxed as ordinary income. That’s higher than long term capital gains rate that you would pay if index fund was held in a taxable account.
^agree with igloo, ucb. Hold the interest/dividend paying stuff in IRA and go for long-term cap gains in taxable. Of course, one needs to balance your investment plan. 100% equities, zero bonds? 80/20? 60/40?
But too many peeps new to investing end up putting their company 401k into a MM since they don’t know what else to do, so a target-date fund is much better.
I don’t think it’s as simple as that. Let’s say I invest $10K per year in a 401(k) for 10 years, so total investment is $100K. And suppose after 10 years that $100K has grown to $150K. Suppose further I’m in a 33% combined federal and state tax bracket. So when I withdraw the $150K, I’m left with $100K after taxes. But remember, that was pre-tax money I was investing.
Now suppose I invest $10K per year for 10 years in a taxable account, again for a total investment of $100K. But that’s $100K of after-tax money, or the equivalent of $150K of pre-tax money I’m investing–because I’ve already paid 33% tax on it. When I withdraw it I only pay 15% long-term capital gains tax, so I’m left with $127.5K. But remember, it cost me $150K in pre-tax dollars to come away with that $127.5K after taxes. So I’m actually worse off investing in the taxable account. If I had invested that same $150K of pre-tax dollars in the tax-advantaged account, it would have grown to $225K (same 50% growth in 10 years), leaving me with $150K after taxes when I withdraw it.
This could vary somewhat depending on what tax brackets you’re in, but much of the “advantage” of paying only capital gains tax on the taxable account is illusory, because you’re forgetting you’ve already paid income tax on the money you’re investing—whereas with the tax-advantaged account, you’re investing pre-tax dollars.
If you only have $10k to invest, then you pop it into a tax-advantaged account (if you assume that your retirement tax bracket will be lower than your 33% today).
But once you have more income to invest, say, another $10k, and further assume that your tax-advantaged is maxed out, then you have to invest it in an after tax account. (Going with your example numbers, regardless of the fact 401k cap is higher than 10k.)
So the question become, what is more beneficial for each investment bucket of $10k: a) the tax-advantaged 10k and, b) the taxable 10k.
a) grows tax deferred until age 70 (or whenever you pull it out).
b) grows incurring taxes every year (unless you purchase a non-dividend stock like BRK).
And the RoT answer is to put your income-producing investments into a and your cap gain investments into b. Otherwise, you are paying tax annually on the dividends from your income producing investments.
If you put bonds into a and stocks into b, you’d have a 50/50 portfolio allocation.
btw: If you hold BRK in b or other non-dividend paying stock, you could even get by with no tax at all if stepped up basis when you die.